Posted on 09/29/2009 8:15:00 PM PDT by Palin Republic
Although Fisher has a reputation for being one of the Fed's toughest inflation fighters, it marked the second such warning by a central bank official in recent days. Fed member Kevin Warsh on Friday said the central bank will need to move swiftly when the time comes to raise rates.
Charles Plosser, president of the Federal Reserve Bank of Philadelphia and also a hawk against inflation, waded into the debate in a speech Tuesday in Easton, Pa., saying the Fed may need to act "well before" unemployment -- now at a 26-year high of 9.7 percent -- returns to normal. The Fed, he said, will need to be on guard "to prevent the Second Great Inflation."
It's all part of a high-wire act that the Fed has to perform as the economy transitions from recession to recovery.
If the Fed raises rates and reels in the unprecedented support too soon, it could short-circuit the rebound. If the central bank waits too long to rein in its stimulus, inflation could be unleashed.
"The wind-down process needs to begin as soon as there are convincing signs that economic growth is gaining traction and that the lending capacity of the banking system is capable of expansion," according to excerpts of a speech Fisher delivered in Dallas. That also was similar to Warsh's comments last week.
Some investors found Warsh's comments confusing, especially coming just two days after the Fed decided to hold its key bank lending rate at a record low near zero and pledged to keep it there for an "extended period." Most economists read that to mean the Fed would keep rates at super-low levels through this year and into part of 2010.
(Excerpt) Read more at finance.yahoo.com ...
Pray for Peter Schiff and AuditTheFed.com
I remember when we called that "stagflation".
Jimmy Carter now comes in color...
Amateurs. We really need to put the adults back in charge again before it’s too late. It might already be too late. Government buffoons!
The market is setting long term interest rates, as it always does. The Fed can control the shortest of rates but has limited influence over long term rates. The bond vigilantes have more cash at their disposal than the Fed, and if they whiff inflation they will drive up long term rates before the Fed even acts.
So what happens when Corporate profits for the third quarter are dramatically below what anyone predicted, and China, Japan, Taiwan, et al get cold feet, and start divesting themselves of the dollar causing our currency to crash? Our money isn’t anchored by anything material, so what’s to prevent a 3000 Dow by Christmas??
We owe so much money it’s difficult to conceive of the amounts, and that means it is equally difficult to conceive of how hard the coming fall will be...
Optimistic son of a gun, isn't he?
The common misconception is that deflation is the opposite of inflation. The truth is that they can hit simultaneously, in a one-two punch, at different levels of the economy.
To start with, deflation at the consumer level happens for two reasons, either people aren’t buying, or products aren’t selling, or both. People don’t buy when they are cutting back on their purchases to save money, or they don’t like the products that are for sale. So retailers have to cut prices to sell their goods.
So those willing to spend will get bargains, and those who have no money to spend still won’t buy. Again, this is deflation.
Now the products that are being sold at a discount can either come out of inventories, which they will until those inventories have been depleted, or they come out of the production line. But because they are discounted, profits are slashed, so retailers have to fire people. So there are fewer people to buy goods.
This is the start of a destructive “deflationary spiral”.
However, this can be independent of inflation. Because in this case, inflation happens first from the suppliers providing raw materials to the manufacturers. Properly, the manufacturers would have to raise prices to compensate, but in this case, they can’t, because nobody would buy their merchandise unless it is on sale.
So they can do what many of them are doing right now, continuing to cut back, trying to lower expenses, cancel less profitable product lines, and even go out of business. Deflation is hitting them on the consumer side, and inflation on the production side.
To make matters worse, many US businesses signed on to very overpriced leases for their land and property. Many of those business real estate deals are coming due, and they can neither pay those leases, nor renegotiate them.
A one-two-three punch.
They can’t possibly know when to stop the printing. They will be much too late. This is patently obvious. Even moreso, they can’t pull back what they have already leant to the banks, banks that will go on a commodities buying tear at the first hint of inflation. They are still afraid to lend credit, but they will have no such reservation jumping on commodities. Say hello to a return to $120/Bbl oil. Only this time it will stick, because there will be plenty of buyers willing to pay that much. Inflation will become entrenched.
Basically, the dollar is toast, and as soon at this becomes obvious, all that money will leap off the sidelines and into real hard assets, causing monster inflation.
Who is the Fed kidding? I guarantee they will botch the job. They already have. All we need is for the bond market to do its disappearing act and then it is bye bye Miss American federal reserve note.
Optimistic? How about “delusional”?
Wow! Does anyone believe that the economy is actually improving? Looks like to me that the big asset gamblers are trying to take advantage of the situation (market) and attempting to make a profit regardless of the situation. The small investor is looking at this and wondering what and why this is happening.
Maybe it is the Fed and their helpful friends in the media that are exploiting the situation - but can’t for the life of me see and benefit in investing in the stock market now. Am willing to see some other side... Can someone make that case!
Go ahead. Raise the rates. The dollar will fall anyway, and freight fuel will rise. Real estate will become nearly worthless. Revenues for government will fall to nearly nothing. The big defaults will arrive. ...hope that brightened your night. ;-)
bttt
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